Qatar’s strong public and external finances are underpinned by the sheer scale of its hydrocarbon production relative to the small size of the population, according to CI
Capital Intelligence (CI), the international credit rating agency, has affirmed Qatar’s long-term foreign and local currency ratings of ‘AA-’ and short-term foreign and local currency ratings at ‘A1+’ with “stable” outlook.
The ratings primarily reflect the country’s substantial economic wealth and sound macroeconomic management, CI said, adding the country’s strong public and external finances are underpinned by the sheer scale of hydrocarbon production relative to the small size of the population.
Benefiting from previous years of high energy prices and “reasonably” prudent fiscal management, the public finances remained “sound,” as the central government budget has been in surplus since the fiscal year that ended March 2001. The budget surplus narrowed to 5.4% of GDP (gross domestic product) in FYE 2015.
“The intermediate-term fiscal outlook shows escalating downside risks in view of the low hydrocarbon prices, in addition to the increased competition of the shale gas produced in the US, and the growing expectation that Iran will return to the natural gas export market when the economic sanctions are removed,” it said, expecting budget surplus to drop to 2% of GDP in FYE 2016.
In this regard, CI cautioned that a prolonged period of low hydrocarbon prices could lead to further weakening in the budget position.
Gross government debt is also moderate at an estimated 26.1% of GDP in FYE 2016, partly reflecting efforts to develop local debt markets.
The current account position is expected to be in the region of 20% of GDP in 2015 and is likely to remain in a declining surplus over the medium-term, covering external debt falling due by a large margin and contributing to the accumulation of official foreign assets, it said.
Lower hydrocarbon prices in addition to the increasing pressure on liquefied natural gas exports or LNG (as the US – a major LNG importer – commenced commercial shale oil production) are expected to drive the current account surplus to 15% of GDP in 2016 and to 7% of GDP in 2017, compared to 31.2% in 2013, CI said.
The Qatari government is a “comfortable” net external creditor, and sizeable foreign assets provide the country with the “capacity to absorb mild external shocks and mitigate concentration risks” arising from the dependence on hydrocarbons, according to the rating agency.
At an estimated 69.8% of GDP or 103.5% of current account receipts in 2015, external debt is high in comparison to most other Gulf Co-operation Council (GCC) countries. However, it is deemed to be within the repayment capacity of the economy in view of the substantial external assets of the government and the private sector, it said.
Economic concentration risk, fiscal rigidity and limited transparency continue to weigh on the sovereign’s ratings, despite recent reforms aimed at diversifying the economy and strengthening fiscal discipline, CI said, adding the country’s public institutional framework “is still at the relatively early stages of development, and fiscal transparency – while improving – is not high.”
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